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The memorandum of association of a company stated that it was formed for working a
German patent which had been or would be granted for manufacturing coffee from dates, and
also for obtaining other patents for improvements and extensions of the said inventions or any
modifications thereof or incident thereto; and to acquire or purchase any other inventions for
similar purposes, and to import and export all descriptions of produce for the purpose of food,
and to acquire or lease buildings either in connection with the above-mentioned purposes or
otherwise, for the purposes of the company.
The intended German patent was never granted, but the company purchased a Swedish
patent, and also established works in Hamburg, where they made and sold coffee made from
dates without a patent. Many of the shareholders withdrew from the company on ascertaining
that the German patent could not be obtained; but the large majority of those who remained
desired to continue the company, which was in solvent circumstances.
A petition having been presented by two shareholders:
Held (affirming the decision of Kay, J.), that the substratum of the company had failed,
and it was impossible to carry out the objects for which it was formed; and therefore that it
was just and equitable that the company should be wound up, although the petition was
presented within a year from its incorporation.
The effect of general words describing the objects of a company in the memorandum of
association considered.
This was a petition for winding up the German Date Coffee Company, Limited.
The company was registered on the 16th of February, 1881, with a capital of £100,000, in
shares of £1 each. By the memorandum of association the objects of the company were stated
(so far as they are important for the present report) to be –
- To acquire and purchase, and to use, exercise, and vend certain inventions for
manufacturing from dates a substitute for coffee, for which a patent has or will be
granted by the Empire of Germany to Thomas Frederick Henley; and also to acquire
and purchase any other patents or privileges which may be granted to the said
Thomas Fredrick Henley, his executors, administrators, or assigns, by the said
Empire of Germany; - To make and use the said inventions, or any improvement therein, or
modification thereof; - To adopt and carry out a certain agreement, dated the 16th of February, 1881,
and made between the Date Coffee Company, Limited, of the one part, and Richard
Hillier, for and on behalf of the company, of the other part; - To manufacture and sell the preparations which are the subject of the
inventions;
- To grant licenses for the manufacture of the said preparations and the sale
thereof; - To apply for and obtain patents for improvements in or extensions of the said
inventions, or any modifications thereof, or any matters in any way incidental
thereto; - To acquire by purchase or otherwise, and to use, exercise, and vend any other
inventions for the above-mentioned or cognate purposes; - To import all descriptions of produce for the purposes of food, and the
exporting of the same, and the selling and disposing thereof respectively; and to
acquire by purchase, or to lease or hire any land and buildings, steam-engines, &c.,
either in connection with the above-mentioned purposes or otherwise, for the
purposes of the company or any company in the formation of which the company
may have an interest.
The agreement of the 16th of February, 1881, referred to in the memorandum, was for the
sale by the Date Coffee Company to Hiller, for £50,000, to be paid partly in cash and partly in
shares of the German Company, of the rights, which the Date Coffee Company had, by an
agreement dated the 17th of January, 1881, purchased from T.F. Henley, in certain patents for
the invention of making from dates a substitute for coffee, which had been or should be
obtained by him in the Empire of Germany.
The German Company issued a prospectus in which it was stated that the company was
formed for the purpose of purchasing and working Henley’s German patent at Frankfort, to
manufacture a partial substitute for coffee from the date fruit. On the prospectus was printed
what professed to be a copy of the articles of association, in which the first object of the
company was stated to be “to acquire, and purchase, and to use, exercise, and vend certain
inventions for manufacturing from dates a substitute for coffee, for which a patent has been
granted by the Empire of Germany to T.F. Hanley”, &c.
At the time when the company was formed Henley had applied for a patent in the Empire
of Germany for his inventions, but such patent was never granted.
In consequence of this misrepresentation some of the shareholders surrendered their
shares, amounting in number to about 27,000, and withdrew from the company.
On the 12th of October, 1881, another agreement was entered into between the German
Company and the Date Coffee Company, by which, after reciting that the German patent had
been refused, but that the company were presenting an appeal from such refusal, the
agreement of the 16th of February, 1881, was varied by the Date Coffee Company agreeing to
grant to the German Company, in addition to the German patent, if obtained, the right to use
the inventions patented by the English patent in Germany, and also to assign to them their
Swedish patent in the same inventions; and it was agreed that on the completion of such grant
and assignment the £50,000 payable under the former agreement should become payable
either in cash or shares, at the option of the Date Coffee Company.
This agreement was brought before a meeting of the shareholders on the 13th of October,
and was sanctioned by a majority representing 8979 shares against 2075.
Two actions by dissentient shareholders were brought to restrain the company from
carrying the agreement into effect, which were still pending.
The German Company had expended £3000 on a manufactory at Hamburg, and it was
stated that they were carrying on a very profitable business there in making coffee from dates,
though without any German patent.
The appeal against the refusal of the German patent was unsuccessful.
On the 30th of January, 1882, this petition was presented by two shareholders, one of
whom was the holder of 100 shares and the other of 10 shares, praying for the winding-up of
the company on the ground that its objects had entirely failed.
The company, in opposition to the petition, produced an affidavit by Mr. Gardiner, a
patent agent, that the application for a patent in Germany had been renewed on the 21st of
September, but did not state what the result of the application was.
The object for which this company was formed was for working a patent in Germany,
which was to be obtained to manufacture coffee from dates. That was the main object or
substratum for which the shareholders subscribed their money, and the German patent cannot
be procured. They never joined the company for the purpose of manufacturing date coffee
without a patent. This brings our case within Baring v. Dix, 1 Cox, 213, where it was no
longer possible to carry on the business for which the partnership was formed. In In re
Suburaban Hotel Company [Law Rep. 2 Ch. 737, 750], Lord Cairns said, “If it were shown
to the Court that the whole substratum of the partnership, the whole of the business which the
company was incorporated to carry on has become impossible, I apprehend that the Court
might, either under the Act of Parliament or on general principles, order the company to be
wound up.” This company ought, therefore, to be wound up, notwithstanding that a majority
of the shareholders may be in favour of continuing the company. At the meeting of
shareholders the intention there expressed was to carry on the company for the sale of the
article to be manufactured without a patent, and to work a patent obtained in Denmark, but
those objects are not within the powers of this company.
We are carrying on the business of the company within the scope of the agreement, and
with the approbation of a very large majority of the shareholders. The company is empowered
to work certain inventions for manufacturing coffee from dates in Germany, and this we may
do without obtaining a patent in Germany. Then we are empowered “to make and use the
inventions or improvements or modifications thereof”, and further to manufacture and sell the
preparations, and to acquire and use, exercise, and vend any other inventions for the abovementioned or any other cognate purposes, and to import all descriptions of produce for the
purpose of food, and export the same respectively. And we have power to purchase land and
buildings in connection with the objects of the company. So that in fact there are many
objects which we may invest the money upon, without carrying out to the full extent all the
purposes for which the company was formed. The case of In re Langham Skating Rink
Company [5 ChD 669], is an authority in our favour, where a winding-up order was refused
on the ground that the company intended to carry out a small portion only of the original
object for which it was formed. In re Middlesborough Assembly Rooms Company [14 ChD
104, 109], also supports this view. There the company proposed to carry out only a part of
the original object, and four-fifths of the shareholders opposed a winding-up, and Lord Justice
James said: “We ought not to disregard the wishes of so large a majority unless we see in
their conduct something unreasonable, something like tyranny, something amounting to an
injury of which the minority have a right to complain.” At the meeting held by this company
shareholders representing 8979 shares supported the resolution to continue the business, while
the minority represented only 2075 shares. The company had not been established a year
before the petition was presented, and the Act contemplates that the company should have a
year to perfect their arrangements.
KAY J. – In this case the petition is presented by two shareholders of the company, one of
whom holds 100 shares and the other ten, for a winding-up of the company, and it is
supported by a sufficient number of shareholders to make me quite sure that the application is
a thoroughly bonafide one. On the other hand, it is opposed by the company and by a
considerable body of shareholders. It does not appear that the company has passed any
special resolution to wind up, but the clause upon which the application is made is the 5th
sub-section of sect. 79, which is worded thus: “Whenever the Court is of opinion that it is just
and equitable that the company should be wound up.”
About the law which I have to apply to this case there really can now be no kind of doubt.
Long ago, in the case of Baring v. Dix [1 Cox, 213], the Court decided it would dissolve a
partnership where it appeared that the business could not be carried on according to the true
intent of the partnership articles, although one partner objected. In that case the partnership
had been instituted for spinning cotton under a patent. The patent existed, but after several
attempts the invention wholly failed, and was entirely given up. One of the partners declined
to assent to the dissolution, whereupon an inquiry was directed whether the co-partnership
business could be carried on according to the true intent and meaning of the articles of copartnership. He refers to the case of Baring v. Dix with approbation, and he says Law REp. 2
Ch. 744: “Now if I may venture to say so, I entirely concur with the course which was there
taken. That was a case which manifestly required the interposition of the Court. Two persons
had agreed not to manufacture cotton generally, but to join in working under a particular
patent. The sole object was to work under a patent supposed to be valid at the time that the
partnership was entered into. It turned out to be wholly invalid, and wholly useless. There
was therefore a complete destruction of the subject matter on which the partnership was to
operate. If the Court were satisfied that was the fact, I apprehend that it would be entirely
competent to the Court to dissolve the partnership against the will either of the majority, or, as
the case there was, of one of two partners.” Then he refers to certain other cases, and finally
at page 750 he says this: “It is not necessary now to decide it, but if it were shown to the
Court that the whole substratum of the partnership, the whole of the business which the
company was incorporated to carry on has become impossible, I apprehend that the Court
might, either under the Act of Parliament or on general principles, order the company to be
wound up. But what I an prepared to hold is this, that this Court, and the winding-up process
of the Court, cannot be used, and ought not to be used, as the means of evoking a judicial
decision as to the probable success or non-success of a company as a commercial
speculation.”
There came later before the Court of Appeal another case which was decided upon the
same principle, the Haven Gold Mining Company. By the memorandum of association of
that company it was stated that the objects for which the company was established were to
purchase, hire, lease, and otherwise acquire mines and minerals, property, lands, or
hereditaments in New Zealand, or elsewhere, or any estate, interests, rights, or privileges over
any such mines which may be deemed necessary or advisable for the purposes of the
company, and more particularly to carry out an agreement of the 24th of December, 1880,
between Hance of the one part, and a trustee for the company of the other part; then to hire
machinery to work and maintain the works of the company, to erect or hire smelting works,
and to purchase ores from other persons, and other mines and mining companies, and to
manufacture, smelt and dress such ores, minerals, and produce, to subscribe to any
undertaking, offering facilities for the purpose of the company, to hold shares in companies,
to acquire patent rights, to lend money on deposit, and so on. The terms of the memorandum
were, “To purchase, hire, lease, or otherwise acquire mines and mineral properties, lands, and
hereditaments in New Zealand or elsewhere”, and in particular to carry out a certain
agreement. It turned out that the so-called agreement was utterly valueless, being an
agreement to hand over a concession which in point of fact was no concession; and the Court
of Appeal determined in that case, where the objects of the company were far wider than they
are here, that as the agreement entirely failed, and the company was not in fact, as I gather,
carrying on or attempting to carry on any other business, but was trying to better their original
concession, and so to acquire the mine which the agreement really did not give them, that
practically the whole substratum of that company had failed, and following entirely (as I
understand their judgment) Lord Cairns’ dictum in the Suburban Hotel Company case [Law
Rep. 2 Ch. 737], they considered that the substratum had in fact completely failed, and the
company ought to be wound up; and the Master of the Rolls in his judgment says: “I have not
forgotten there are general words in the memorandum of association extending the right to
work mineral property generally, but the object of the company, or the special object in the
memorandum of association, is to work this gold mine, and the point we have to consider is
whether there is any mine at all as to which the company has a title, or a contract which may
eventuate in a title.” Then he says later on that he thinks there was no title, and he says:
“Well, then, is it to be tolerated that the majority of the shareholders shall bind the minority to
go on when they have no title at all, merely because they think it possible they may get a
title?” And then he refers to instructions given to the person who was to negotiate, and says:
“At present there is no negotiation and no reasonable prospect of obtaining the mine from any
one.”
Therefore the law so far is established thus, that if the whole substratum of the company
is gone, it is within sect. 79 “just and equitable” that the company should be wound up. But
then on the other side of the line comes the Langham Skating Rink Company, and that case
shows where the line is to be drawn. There the object of the company was the construction or
adaptation of any building or premises as a skating, rink, club, house, or place of public or
private entertainment, and there was no special agreement mentioned in the memorandum,
and no particular property pointed at, but there was afterwards by a prospectus a statement
that a site had been purchased facing the Langham Hotel, and that when the block was pulled
down a rink would be erected upon it. That scheme failed, and the company determined to do
something much less than their original scheme; namely, to build, not the original rink, but a
small rink upon a portion of the premises which they had acquired, and which could be done
at less cost, and the shareholders applied to have the company wound up. In that case the
company were actually doing that which the memorandum contemplated, there was no
ground for saying that the main purpose contemplated by the memorandum had failed at all.
The attempt there was to make out that the main purpose – the whole substratum of the
company – had failed. That argument did not succeed, because what the company were doing
was strictly in every sense of the word in conformity with the memorandum, and although it
was a less thing than they intended to do originally, as the prospectus showed, still the
question, whether it was to be done or not, was precisely one of those questions on which the
majority of the company had a right to bind the minority. I think that shows very plainly
where the line is to be drawn, and I take the line to be this, that where on the face of the
memorandum you see there is a distinct purpose which is the foundation of the company,
then, although the memorandum may contain other general words which include the doing of
other objects, those general words must be read as being ancillary to that which the
memorandum shows to be the main purpose, and if the main purpose fails and fails altogether,
then, within the language of Lord Cairns in the Suburban Hotel Company case [Law Rep. 2
Ch. 737] and within the decision of Baring v. Dix [1 Cox, 213], the substratum of the
association fails.
With that understanding of the law I come to the question which I have to decide here,
which is a question so near the line that it is a little troublesome to decide upon which side of
the line it comes. In this case the name of the company is the German Date Coffee Company,
Limited, and the name seems to me to be rather material in determining what the real object
and purpose of the company was. The memorandum stated the objects of the company to be
“to acquire and purchase, and to use, exercise, and vend certain inventions for manufacturing
from dates a substitue for coffee, for which a patent has or will be granted by the Empire of
Germany.” I pause there, because it has been said that may be read in two ways–that you
may read the first part as meaning to acquire an invention, and the rest of it as a merely
incidental statement that a patent will be granted. Of course the observation occurs at once
that it is one thing for the company to work in Germany a German patent, and a very different
thing to form a company to work in Germany an invention for which there is no patent, and I
have no doubt whatever that this first clause of the memorandum means to acquire and
purchase a patented invention, an invention for which a patent has been or will be granted.
Reading the whole of that clause together, I have no doubt at all it means to purchase and
work an invention patented in Germany. The other words also seem to me to confirm that
meaning, because the same clause goes on, “and also to acquire and purchase any other
patents or privileges which may be granted to Henley by the Empire of Germany”; so that I
read the first clause as being a clause which makes at any rate the first object of the company
the acquisition and working of an invention patented in Germany. Then the second is this, “to
make and use the said inventions.” What are the said inventions? They are the inventions
patented in Germany, or improvements thereon, or modifications thereof. It is said, if I read
the second clause as meaning patented inventions, it is tautologous and useless. I admit there
is a certain amount of tautology, but it is not entirely useless, because there is a sufficient
purpose for the second clause in those words, “or any improvement therein or modification
thereof” and I think that is the meaning. I should be slow to say that this second clause means
to make and use the said inventions, whether patented or not, which is the construction it is
argued I ought to adopt, because it would be very easy if that was the meaning to say so in
unmistakable words, and without plainer words I do not think myself at liberty to consider the
clause as meaning to use the said inventions whether they are patented or not. Then what
follows in the third clause is, “to adopt and carry out a certain agreement”, which is described,
and to which I will refer presently. The fourth is, “to manufacture and sell the preparations
which are the subject of the said inventions, or any or either of them.” That prima facie
means to manufacture and sell the preparations which are the subject of the patented
invention. I think that ambiguity, if ambiguity there is, is removed by the fifth clause, which
clause is to this effect: “to grant licenses for the manufacture of the said preparations”: clearly
shewing that the draughtsman, by “preparations”, meant preparations made under the patent.
The sixth is, “to apply for and obtain patents for improvements in or extensions of the said
inventions, or any modification thereof, or any matters in any way incidental thereto.” The
seventh is, “to acquire, by purchase or otherwise, and to use, exercise, and vend any other
inventions for the above-mentioned or cognate purposes.” Then the eighth is, “to import all
descriptions of produce for the purposes of food, and the exporting of the same respectively
from such countries and the selling and disposing thereof, and to acquire and obtain by
purchase, or to lease or hire, and so on, any land and buildings, &c., in connection with the
above-mentioned purposes, for the purposes of the company or any company in the formation
of which this company may have an interest.” Then, to sell, lease, or otherwise dispose or
mortgage the patent rights, lands, premises, &c., of the company, and to invest the capital of
the company in building on these lands, and so on. As no stress has been laid upon any of the
subsequent clauses of the memorandum, I need not read them further.
I cannot really doubt that the meaning of this memorandum is that the first purpose, the
main object of the company, is to acquire an invention patented in Germany, and to work that
invention, and that it is not to acquire an invention which is not patented, and if I had any
doubt I am at liberty to look to the agreement mentioned in the memorandum in order to clear
up that doubt, and when I look to the agreement, I find it was made the same day the company
was formed, and is between another company, an English company, which had been formed
to work an English patent for the same invention, and one Hiller, as trustee for what is called
the German Date Coffee Company. After reciting that Henley had applied for a German
patent, the agreement witnesses “that Hillier shall purchase from the English Date Coffee
Company the said letters patent in and for the Empire of Germany, and also all improvements,
if any, which may be thereafter made or discovered therein, or additions thereto, and the
benefit of any further letters patent which may be obtained for such improvement, and any
extensions thereof” and the consideration for the said purchase was to be £ 50,000. There is
nothing in this agreement I believe which gives to the German Date Coffee Company
anything in the nature of license or power to work this invention, supposing the English
Company could give such a right without a patent in Germany. The whole thing contemplates
the assignment for £ 50,000 to the German Date Coffee Company of a patent procured or to
be procured in Germany for a particular invention, and any subsequent patent that might be
obtained for improvements in Germany. Looking at that, I cannot doubt for one moment what
the meaning of this memorandum was. They had no agreement whatever to work any
invention in Germany except the German patent. That was the thing which was comprised in
the agreement mentioned in that memorandum. Afterwards there were attempts made to get
the patent in Germany, which did not succeed. There can be no doubt now, if ever there was
any doubt, since the judgment in the case of the Ashbury Railway Carriage Company v.
Riche [Law Rep. 7 H.L. 653], what is the effect of the memorandum of a joint-stock
company. Lord Cairns, in his judgment in that case, to which we have so often had to refer,
says this, Law Rep. 7 H.L. 607: “With regard to the memorandum of association, your
Lordships will find, as has often already been pointed out, although it appears somewhat to
have been overlooked in the present case, that that is as it were the charter, and defines the
limitation of the powers of a company to be established under the Act. With regard to the
articles of association, those articles play a part subsidiary to the memorandum of association”
Therefore I must look to the memorandum and the memorandum only, to know what is
the charter of the German Date Coffee Company, and what are the objects and purposes of its
formation.
Passing on from the first agreement it seems that other agreements from time to time were
made, and I notice incidentally, not in the least as influencing the conclusion to which I come,
but for the purpose of giving a narrative of what took place, that a prospectus was issued in
February, 1881, which began by stating, “The company if formed for the purpose of
purchasing and working Henley’s German patent at Frankfort, to manufacture a partial
substitute for coffee from the date fruit” and the prospectus had printed upon it what was
alleged to be a copy of the memorandum of association of the German Company, but instead
of stating the first object in the terms of the memorandum, it stated the object to be “to
acquire and purchase and to use, exercise, and vend certain inventions for manufacturing from
dates a substitute for coffee, for which a patent has been granted by the Empire of Germany.”
It seems because that statement was not true many shareholders applied to be relieved from
their contracts as shareholders, and the company felt themselves bound to accept the surrender
of a great number of shares. After that, as there was some difficulty in obtaining a patent
from Germany, modifications of the agreement were made, one dated the 13th of May, 1881,
which I need not dwell upon, when they contemplated that letters patent would be eventually
granted by the Empire of Germany, and another agreement, which I must refer to. It seems by
that agreement, dated the 12th of October, 1881, which was made between the English
Company of the one part, and the German Company of the other part, after reciting what had
taken place and the efforts to obtain a patent in Germany, it was agreed between the parties
that the English Company should grant to the German Company “the sole use and exclusive
license, power, and authority, so far as they can grant the same, to make, use, manufacture,
sell, lease, license, or let, in and for the Empire of Germany all the inventions patented for and
in the Kingdom of Great Britain and Ireland.” What power had the English Company to
grant the English patent to be used in Germany? The English patent gives them no exclusive
right to use the invention in Germany, and without any such attempted license the German
Company might have used the invention in Germany as much as they liked. Then it went on:
“The company shall if and when the result of the appeal against the refusal to grant such
letters patent shall ultimately be successful, and the said letters patent be granted and issued to
the company, forthwith duly assign and make over the same to the German Company.” Then
it provides that the company shall duly assign to the German Company all or any patents now
or hereafter to be applied for without any payment whatever, and then that they would assign
to the German Company at once the Swedish patent and all rights possessed or enjoyed by
them by reason of the possession or ownership of such Swedish patent, and that the German
Company should upon the execution of the grant mentioned in clause 1 (which, so far as I
understand, was a perfectly nugatory grant and the assignment mentioned in clause 4 (which
was the assignment of the Swedish patent), for the same invention pay the sum of £50,000.
That agreement it seems was brought before a meeting of the shareholders, and at that
meeting sanction was obtained to the agreement upon the 13th of October. There were 8979
votes for adopting the agreement and 2075 against it, and it bound the company to pay
£50,000 for a perfectly nugatory grant of a license to use an English patent in Germany, and
for the assignment of a Swedish patent which would be of no more use in Germany than an
English patent. Two actions were brought to restrain the company from entering upon the
agreement, and the company, upon an interlocutory motion, undertook not to carry out any
part of that agreement.
What remains is this. It is said the company have works in Hamburg, which they acquired
when they hoped to obtain the German patent, and that there they are carrying on some
manufacture of date coffee, but of course not under a German patent, because they have not
got the German patent. I must add to the narrative which I have given up to this point, that the
hope of getting the German patent seems to be very small, because the appeal against the
determination not to grant it has been tried and has failed, and I do not know that there is any
further appeal possible. Therefore I must take it upon these materials that it is entirely out of
the question that any German patent can be obtained.
Now the question is under which class of authorities does this case come. Does it come
under the class of which the Langham Skating Rink is an example, or under the class of which
the Suburban Hotel and the Haven Gold Mining Company are examples? I must answer that
by these considerations. Here it is beyond all question that the German patent is not, and I
must take it now cannot be obtained. Certainly, according to the memorandum of association
of this company, the acquisition of a German patent and working under it was the main and
principal object of the existence of this German Date Coffee Company. Any other thing in the
memorandum, if there by any, seems to be subsidiary and auxiliary only to that object of
working a German patent. Therefore it seems to me that the case comes within the Suburban
Hotel Company’s case, Law Rep. 2 Ch. 737, and the Haven Gold Mining case, Ante, p. 151,
rather than that of the Langham Skating Rink, 5 Ch. D. 669, and that this is a case in which
that which is, or rather was to be, the substratum, the main object of the company, to which all
other objects are merely subsidiary and auxiliary, namely, the obtaining of a German patent
for a particular invention, has completely failed. Therefore it seems to me that it is a case in
which it would be beyond the purposes of this company to carry on the business which they
now propose to carry on, and that I ought to regard the wish of the minority, who say we
decline to be involved in the carrying on of a business which was really not contemplated by
the memorandum of association at all.
But then it is said another patent has been obtained, namely, the Swedish patent. It seems
almost ludicrous to imagine that the German Company, a company formed for the purpose of
carrying on business in Germany, can say that it has taken any steps towards the
accomplishment of that object by obtaining a Swedish patent for the same invention. I look to
the memorandum of association again, and the only clause under which it is pretended to
justify that acquisition of the Swedish patent, which is only obtained, if at all, under the
agreement of the 12th of October, 1881, is the 7th clause, and the 7th clause is this: “To
acquire by purchaser or otherwise, and to use, exercise, and vend any other inventions for the
above-mentioned or cognate purposes.” The Swedish patent is not another invention but it is
another patent for the same invention in another country, and I think it would be entirely ultra
vires to acquire the Swedish patent.
The absurdity of giving £ 50,000 for a Swedish patent and for a license under the English
patent to enable the German Company to make coffee in Germany is too glaring to need any
comment at all.
I therefore think the whole substratum of the company has failed, and that the authorities I
have referred to are sufficient not only to authorize but to oblige the Court to put a stop to the
further proceedings of this company, which will, in my opinion, be neither more nor less than
employing moneys obtained from the shareholders, in carrying on a business which
practically is not authorized by the memorandum of association. I therefore make the usual
winding-up order. No order as to costs, except that the company will take their costs.
ESSEL, M.R. – This company, in my opinion, was formed, as the directors stated in their
prospectus, for the purpose of purchasing and working Henley’s German patent at Frankfort,
for the manufacture of a partial substitute for coffee from the date fruit. Of course, I do not
use the prospectus for the purpose of interpreting the memorandum of association, I only use
it for the purpose of showing that my construction is probably correct, because it is the
construction adopted by the chairman and directors of the company after its incorporation,
and before they issued the prospectus inviting the public to come in. It is the duty of the
Court in construing a document, to read it and to ascertain its meaning fairly from the
contents of it, but it is always a satisfaction to me when I find my construction of a contract is
that which is adopted by every party to it.
The company is stated to be registered for several objects. The first object is to acquire a
German patent granted to one Henley for manufacturing from dates a substitute for coffee.
The second is to make and use the same invention or any improvement of it. That refers to the
German patent. The memorandum is tautologous, an observation which need not be confined
to this memorandum–it is very common as regards all memorandum of association. The third
object is to adopt and carry out an agreement dated the 16th of February, 1881. When we
come to look at that, it is an agreement for the sale of the German patent. Article 4 is to
manufacture and sell the preparations which are the subject of the said invention. That is pure
tautology. Nobody has been able to suggest that there is anything there which is not included
in Articles 1 and 2. Article 5 is to grant licenses. Of course, if you have no patent you cannot
grant licenses. Article 6 is to apply for and obtain patents for improvements or extensions of
the said invention, and so on. Article 7 is to acquire and purchase, or otherwise to use,
exercise, and vend, any other inventions for the above-mentioned or cognate subject. All
those are merely ancillary provisions. Then there is Article 8, which I read to be this, to
import all descriptions of produce, in connection with the above-mentioned purpose, or
otherwise for the purposes of the company. It never can mean to import and export food
produce generally. That would be making it a company for an entirely new and distinct
purpose. The other reading is, in my opinion, the more grammatical reading of the two; but
whether it is so or not, it is, I think, the correct reading, and is merely ancillary. That being so,
it appears to me that this memorandum, when fairly read, and notwithstanding the rather loose
use of general words, is simply to buy this patent, and to work it either with or without
improvements. That is the substance of the whole thing.
Now what happened was this. I have no reason to doubt that the framers of the
memorandum and articles believed that they would obtain the German patent, for they said,
“for which a patent has or will be granted by the Empire of Germany.” But they were a little
too sanguine, and they cannot complain if, like other prophets, their prophecies are sometimes
not verified by the result. It turned out that the German Empire would not grant the patent.
When that happened what ought they to have done? Surely they ought to have said, “We
cannot carry on business, and we must wind up”; and that is exactly what Mr. Justice Kay
ordered to be done. There is an interim matter which ought not to be forgotten. A large
number, in fact the majority of the applicants for shares, had their names taken off on the
ground of deception. They understood there was a patent when there was not, and the number
of shareholders left is very small–holding something like 13,000 shares in all–a very different
company from the original company, which was formed with 100,000 shares. Then it turns
out that the company has, quite bonafide, in anticipation of the granting of the German patent,
established at Hamburg a factory for the manufacture of this substance called date coffee, and
they say they have sold a good deal of it and are doing a prosperous trade. They have also
entered into an agreement with the parent company, and English company called the Date
Coffee Company, by which that company has agreed not to compete with this company in
Germany. I ought also to refer to the affidavit of Mr. Gardiner, who says that he applied in
September for a patent on behalf of Mr. Hanley, but he does not say that he obtained it, and I
therefore assume that for some reason or other it was refused. This application, whatever the
result may have been, appears to me no ground for varying the order which has been made.
That being so, it seems to me, as the learned Judge of the Court below said, the whole
substratum of the company is gone. Its business was not to make a substitute for coffee from
dates, but to work a German patented invention in Germany; to work it under the monopoly
granted by the German Government to the patentee, and not to enter into any such business
generally. Therefore the shareholders have a right to say, and the minority of the shareholders
have a right to say, “We did not enter into partnership on the terms.” It is exactly like Baring
v. Dix, 1 Cox, 213. It was not a general partnership to make a substitute for coffee from dates,
but to work a particular patent, and as that particular patent does not exist, and cannot now
exist, they are entitled to say the company ought to be wound up.
BAGGALLAY, LJ. – I am of the same opinion. It appears to me that the principle involved in
the decision of In re Suburban Hotel Company [Law Rep. 2 Ch. 737, 742], by Lord Cairns
amounts to this, that if you have proof of the impossibility of carrying on the business
contemplated by the company at the time of its formation, that is a sufficient ground for
winding up the company. Therefore the question arises in the present case, is there an
impossibility of carrying out the objects of the company? I cannot entertain any doubt, having
regard to the memorandum of association, and the view I take of the memorandum is verified
by the surrounding circumstances, that the real contemplated object of the company at the
time when it was formed was to carry out the manufacture of German date coffee, to be
manufactured from dates, to be manufactured in Germany under a patent that was actually
granted or about to be granted, and that in the contemplation of all parties the granting of the
letters patent in Germany for the working of this invention was the basis of the company. No
doubt in this case, as in many other cases, you have a variety of general words added which, if
they are to be construed by themselves, would give powers to carry on almost any possible
business which could be suggested. There must be taken within certain limits, and those limits
are, that they must be regarded as ancillary to the purport of the scheme for which the
company was formed. It appears to me, for the memorandum of association so construed, that
the business of the company was the manufacturing of coffee by virtue of a patent already
obtained, or to be obtained, with the benefit of any improvement that might be made by the
patentee or the company in connection with that patent.
Now, is there an utter impossibility in carrying on the business of the company? It
appears to me from the evidence that there is. Not only is there very strong evidence that the
obtaining of these letters patent was contemplated by all the parties who took shares, but the
holders of 27,000 shares, being more than one quarter of all the shares in the company, had
their names removed from the register of shareholders, on the ground that they had been
deceived by a statement in the prospectus that the patent had been already obtained.
It appears to me beyond all question that there is an impossibility of carrying on the
business of the company, and I think that the order Mr. Justice Kay made is quite correct. I
feel bound to say I entirely go with him in the enunciation of the law applicable to the case,
and his criticisms on the cases.
LINDLEY, L.J. – I am of the same opinion. The first question we have to consider is, what is
the fair construction of the memorandum of association? It is required by the Act of 1862 to
state what the objects of the company are. In construing this memorandum of association, or
any other memorandum of association in which there are general words, care must be taken to
construe those general words so as not to make them a trap for unwary people. General words
construed literally may mean anything; but they must be taken in connection with what are
shown by the context to be the dominant or main objects. It will not do under general words
to turn a company for manufacturing one thing into a company for importing something else,
however general the words are. Taking that as the governing principle, it appears to me plain
beyond all reasonable dispute that the real object of this company, which, by the by, is called
the German Date Coffee Company, Limited, was to manufacture a substitute for coffee in
Germany under a patent, valid according to German law. It is what the company was formed
for, and all the rest is subordinate to that. The words are general, but that is the thing for
which the people subscribe their money.
Now, I attach great importance to an observation made by Mr. Buckley, that the
petitioners did not wait for a year after the formation of the company before presenting their
petition. It was presented within a year, and therefore we ought to be careful in considering
what ought to be done under those circumstances, because the Act of Parliament gives the
company a year to see whether it can get to work or not. The language of the 79th section,
sub-s. 2, is, “Whenever the company does not commence its business within a year from its
incorporation, or suspends business for the space of a year.” That, I understand, is to give the
company a reasonable time. Supposing that there was no proof that the company had failed
within a year, I should think that the company was entitled by statute to a year–the
shareholders would be entitled to it. But when we have to deal with a case in which it is
apparent within a year that the whole thing is abortive, that the company cannot acquire that
which it was intended to acquire, and cannot carry out the objects for which it was formed,
the Act of Parliament does not require us to wait a year, and the case is then brought fairly
within the 5th clause of the same sub-section, i.e., whenever the Court is of opinion that it is
“just and equitable” that the company should be wound up.
I proceed, therefore, to the next point, whether the petition having been presented within
the year the evidence shows that the objects for which the company was formed cannot be
attained. To my mind the evidence is overwhelming. The company have tried to get this
patent and have failed, and the only point which appears to me to present any difficulty is that
last thrown out by Mr. Ince, and very properly insisted on by him and Mr. Buckley, that there
is even now an application to the Government for a patent. I have looked at that a little
closely, and my opinion is there is nothing in it at all. Mr. Gardiner makes an exhibit of a
document from the German Patent Office; I have looked at it, and all it comes to is this–it is a
certificate that an application had been made to the Imperial Patent Office on behalf of Mr.
Henley, of London, for a patent for an apparatus for drying and roasting dates; that is what is
applied for. That was the 21st of September, and we are told that in the absence of opposition
a patent would be got in two months. That would be the 21st of November, and this affidavit
is sworn the 4th of February, 1882, and there is still not patent. What does such an affidavit
mean? It is a mere blind; it is put on the file to throw dust in the eyes of the Court.
It appears to me, therefore, that the judgment of Mr. Justice Kay was perfectly correct,
and that the facts warrant the judgment he pronounced, and the application ought to be
dismissed with costs
